Economic Analysis Division Emerging Markets Research

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1 Bulgaria EU Greece EMDE* FYROM Romania Cyprus Serbia Turkey Egypt Albania Cyprus Bulgaria Serbia EU Greece Turkey Albania FYROM Romania EMDE* Egypt Cyprus Greece FYROM EU Bulgaria Albania Romania Serbia World EMDE* Turkey Egypt Romania Turkey EMDE* Albania Egypt Bulgaria Cyprus World EU Serbia Greece FYROM Economic Analysis Division Emerging Markets Research Bi-Weekly Report 7 November 7 TURKEY A significant narrowing in the underlying current account deficit in 9M:7 was more than offset by a sharp rise in gold imports and an unfavourable energy bill Turkey rises nine places in the World Bank s Ease of Doing Business Ranking NBG - Economic Analysis Division Paul Mylonas, PhD : pmylonas@nbg.gr Emerging Markets Research ROMANIA The NBR narrowed further its interest rate corridor, while maintaining its key rate on hold Romania fell places to th in the World Bank s Ease of Doing Business Ranking BULGARIA Τhe -quarter rolling current account surplus remained at a high of.9% of GDP in Q:7 against.% in Q: Bulgaria falls places to th in the World Bank s Ease of Doing Business Ranking Head: Michael Loufir : + : mloufir@nbg.gr Analysts: Konstantinos Romanos-Louizos : romanos.louizos.k@nbg.gr Louiza Troupi : troupi.louiza@nbg.gr SERBIA The IMF reached a staff-level agreement with the authorities on the completion of the th and final review of the -year EUR.bn precautionary Stand-By Agreement (% of 7 GDP) Serbian competitiveness improved in the World Bank Ease of Doing Business Report for Athanasios Lampousis : lampousis.athanasios@nbg.gr 7 Real GDP Growth (%, 7F) * EMDE: Emerging Market & Developing Economies 7 FYROM Banking sector net earnings declined by 7.% y-o-y in 9M:7, as a result of elevated NPL provisions due to an adverse political and economic environment ALBANIA The banking sector s bottom line strengthened markedly on an annual basis in 9M:7, with ROAE returning to double digits End-year Headline Inflation (%, 7F) * EMDE: Emerging Market & Developing Economies Fiscal Balance (% of GDP, 7F) * EMDE: Emerging Market & Developing Economies Current Account Balance (% of GDP, 7F) CYPRUS Tourist arrivals posted a solid increase of.% y-o-y in M:7, despite a slowdown from the main source countries (Russia and the UK) Banking sector deleveraging slowed in 9M:7, on the back of an increase in new corporate loans Customer deposits slowed in 9M:7, mainly due to a decline in nonresident deposits EGYPT An MF mission and the Egyptian authorities reach a staff-level agreement on the second review of Egypt s economic reform programme supported by a -year USD bn IMF Extended Fund Facility APPENDIX: FINANCIAL MARKETS * EMDE: Emerging Market & Developing Economies Please see disclosures in page

2 /9 9/9 / 9/ / 9/ / 9/ / 9/ / 9/ / 9/ / 9/ /7 9/7 /9 9/9 / 9/ / 9/ / 9/ / 9/ / 9/ / 9/ / 9/ /7 9/7 7 November 7 Turkey BB / Ba / BB+ (S&P/ Moody s / Fitch) Current Account Balance (-M Rolling Sum, as % of GDP) Trade Bal., excl. gold & energy Energy Balance Gold Balance Core Current Account Bal. Net FDI Other Investment Enforcing Contracts Trading Across Borders Other Tourism Balance Current Account Balance Capital & Financial Account (-M Rolling Sum, as % of GDP) Portfolio Investment Capital & Financial Acc. Balance Ease of Doing Business Index (Score: -) Starting a Business Dealing with Resolving Construction Insolvency Permits Getting Electricity Registering Property A significant narrowing in the underlying current account deficit (CAD) in 9M:7 was more than offset by a sharp rise in gold imports and an unfavourable energy bill. The CAD rose by.9 pps y-o-y to.7% of GDP in 9M:7. Specifically, a deterioration in energy and gold balances (by. pps and. pps of GDP y-o-y, respectively) more than offset a significant improvement in the underlying (core) current account balance (excluding gold and energy). The deterioration in the energy balance was in line with global oil price developments and buoyant domestic demand, while that of the gold balance was driven by a sharp rise in gold imports (they reached.9% of GDP on a -month rolling basis in September well above their end- and long-term annual average of.7% of GDP). Importantly, the underlying current account balance improved by. pp y-o-y, to a deficit of.% of GDP in 9M:7, mainly on the back of the continued recovery in exports (up c..% y-o-y in USD terms). Exports were notably stronger to the EU, supported by stronger competitiveness of Turkish goods in global markets and firmer growth in the EU-. A strong recovery in the tourism sector also contributed to the improvement in the underlying current account. Indeed, tourist receipts rose significantly, by 7.9% y-o-y or. pps of GDP y-o-y in 9M:7, following declines of.% y-o-y in 9M:, supported by the return of Russian tourists, the ease of domestic security concerns and the cheaper TRY. The bulk of the CAD was covered through large (net) portfolio investments in 9M:7. The CFA balance improved by.7 pps y-o-y to a surplus of.% of GDP in 9M:7, fully covering the CAD. Importantly, with the dissipation of political uncertainty after the mid-april referendum, the tightening of the monetary policy stance, and the rebound in economic activity, (net) portfolio investments rose sharply (up. pps y-o-y to.% of GDP in 9M:7) and became the main source of financing of the CAD. Due to negative (net) errors and omissions (minus USD.9bn y-t-d or -.% of GDP), FX reserves declined slightly, by USD.bn y-t-d to USD 9.bn in September c..7 months of imports of GNFS. Going forward, we expect the current account to deteriorate further during the rest of the year, but at a slower pace (by. pp y-o-y to.% of GDP in -M:7), mostly due to gradually normalizing gold imports and a less unfavourable energy bill (the rise in the average price of Brent is expected to decline from c..% y-o-y in 9M:7 to c..% in -M:7 in USD terms). Overall, we see the CAD rising to c. USD.bn (.% of GDP) in FY:7 from USD.bn (.% of GDP) in FY:. Turkey rises nine places in the World Bank s Ease of Doing Paying Taxes Getting Credit th Business Ranking. Turkey rose to th place among 9 Protecting out of countries in this year s World Bank s Ease of Doing Business Ranking, Minority 9 Investors more than reversing the past year s decline of places. The improvement was broad-based. Indeed, six out of the ten areas Nov. -M F -M F -M F assessed for the ranking improved, three remained unchanged and one -m TRIBOR (%).... deteriorated (see chart). TRY/EUR...7. The area of Registering property posted the largest improvement, due Sov. Spread (, bps) to lower costs of transferring property. The area of Getting credit Nov. -W % YTD % -Y % recorded the second largest improvement, on the back of strengthened ISE, access to credit through the adoption of a new law on secured transactions that establishes a unified collateral registry and allows outof-court enforcement of collateral, on the one hand, and an improved 7F F Real GDP Growth (%)..... Inflation (eop, %) credit reporting system through the adoption of a new law on personal Cur. Acct. Bal. (% GDP) data protection, on the other. The only area that recorded a Fiscal Bal. (% GDP) deterioration was Resolving insolvency. NBG - Emerging Markets Research Bi-Weekly Report

3 7F F / 7/ / 7/ / 7/ / 7/ / 7/ / 7/ / 7/ /7 7/7 / 7/ /9 7 November 7 Romania BBB- / Baa / BBB- (S&P / Moody s / Fitch) Monetary Conditions Index Exchange Rate Contribution Monetary Conditions Index Trading Across Borders 7 tighter monetary conditions looser monetary conditions Forecast Interest Rate Contribution Real GDP Growth, Budget Deficit & Current Account Deficit Enforcing Contracts Budget Deficit (% of GDP) Current Account Deficit (% of GDP) Real GDP Growth (y-o-y % change) Ease of Doing Business Index (Score: -) Resolving Insolvency Paying Taxes Starting a Business Protecting Minority Investors Dealing with Construction Permits Getting Electricity Registering Property Getting Credit th out of 9 in Nov. -M F -M F -M F -m ROBOR (%).... RON/EUR.... Sov. Spread (, bps) Nov. -W % YTD % -Y % BET-BK, F F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) The NBR narrowed further its interest rate corridor (IRC), while maintaining its key rate on hold. At its last meeting of the year, the NBR Board kept its -week repo rate unchanged at a low of.7% for a 9 th consecutive month. At the same time, it narrowed further its IRC (set by the overnight deposit rate and the Lombard rate) to ±. pp around the policy rate from ±. pps in October and ±. pps in September. Note that the overnight deposit rate was the effective policy rate until recently, as money market rates (MMR) were very low, reflecting excess liquidity in the system. Their subsequent increase (the -month MMR currently stands at.% against.7% in mid- September) was mainly the result of large interventions by the NBR in the FX market (estimated at EUR.7bn or.% of GDP over the past months) to sustain the RON (see below). Nevertheless, effective monetary conditions remain loose (see our MCI), reflecting low interest rates (the ex-post -month real MMR is estimated at -.%, below its historical average of.9%) and a weak RON (the CPI-based REER is by down by an estimated.% y-o-y), with the latter mainly due to fiscal concerns. The NBR is likely to refrain from any policy rate hikes until February, but to continue with tight liquidity management. Overheating pressures are increasing rapidly in the economy, with GDP growth (projected at.% in FY:7 and.% in FY:) running well above its long-term potential (of.%), and the current account deficit rising sharply (to an estimated.% of GDP in FY:7 and an estimated.% in FY: from a low of.7% in FY:). At the same time, fiscal imbalances are widening, due to tax cuts and a loose incomes policy (the budget deficit is projected to rise to.% of GDP in FY:7 and, even more, to.% in FY: from.% in FY:, above the EU threshold of.%). Against this backdrop, the NBR appears to be significantly behind the curve. In fact, Governor Isarescu has hinted that the NBR is unwilling to embark on an aggressive rate hiking cycle as long as the ECB and other regional central banks abstain, so as to prevent an inflow of hot money. Overall, we expect the NBR to continue its tight liquidity management, so as to keep MMRs close to the policy rate. Note that liquidity pressures are expected to increase over the last months of the year, on the back of soaring budget financing needs. In our view, the first hike in the policy rate will only come in February, when inflation (up.% y-o-y in October) is expected to exceed the upper-end of the NBR s target range (.±%). The policy rate could reach.% by end- (.% in real and compounded terms against -.% currently). Romania fell places to th in the World Bank s Ease of Doing Business Ranking. This deterioration is mainly attributed to the increase in time required for businesses to comply with VAT obligations and the lack of progress in reforming the complex and timeconsuming processes of getting a construction permit and connecting to the electricity network. On a positive note, Romania improved the quality of its land administration system by digitizing ownership and land records and reduced the cost of starting a business (to.% of total income from.% previously, requiring procedures and taking days). Importantly, the WB report praised the lack of trade barriers, with Romania ranking st among 9 countries in the relevant category. All said, Romania remained the second best ranked economy in SEE-, well below FYROM ( th ), but close to Serbia ( rd ). NBG - Emerging Markets Research Bi-Weekly Report

4 Q Q 9Q 9Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 7Q 7Q Q Q 9Q 9Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 7Q 7Q 7 November 7 Bulgaria BB+ / Baa / BBB- (S&P / Moody s / Fitch) Current Account Balance (CAB, -Q rolling sum, as % of GDP) Trade Balance Services Balance Income Balance Transfers Balance CAB CAB (excl. energy) Capital Account Portfolio Investment Other Investments CFA Balance Trading Across Borders 7 Capital & Financial Account (CFA) and Net Errors & Omissions (-Q rolling sum, % of GDP) Enforcing Contracts Ease of Doing Business Index (Score: -) Resolving Insolvency Paying Taxes Starting a Business Protecting Minority Investors - - FDI Currency & Deposits (mainly banks) Net Errors & Omissions Dealing with Construction Permits Getting Electricity Registering Property Getting Credit th out of 9 in Nov. -M F -M F -M F -m SOFIBOR (%) BGN/EUR Sov. Spread (, bps) Nov. -W % YTD % -Y % SOFIX F F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP)..... Fiscal Bal. (% GDP) The -quarter rolling current account surplus (CAS) remained at a high level of.9% of GDP in Q:7 against.% in Q:. In 9M:7, the CAS narrowed by. pps y-o-y to.% of GDP. Specifically, the trade deficit rose sharply in 9M:7 (up. pps y-o-y to.9% of GDP), mainly due to higher oil prices (the energy trade deficit rose by. pp of GDP y-o-y in 9M:7). The deterioration would have been sharper had non-energy exports not improved in 9M:7 (up. pps of GDP y-o-y). Indeed, despite deteriorating competitiveness (real wage growth -- currently at.% y-o-y -- has far surpassed productivity gains in recent years -- c..% y-o-y), Bulgaria still benefits from very low production costs (total hourly costs are one-sixth of the EUaverage). Importantly, pressures on the trade deficit were partly offset by the narrowing of the income deficit (down. pp y-o-y to.7% of GDP in 9M:7) mainly due to lower profit and dividend outflows. The -quarter rolling capital & financial account balance declined to a deficit of -.% of GDP in Q:7 from a surplus of.% in Q:, largely due to base effects. Net portfolio investment declined sharply in 9M:7 (recording outflows of.% of GDP against inflows of.% in 9M:, with the latter, however, including proceeds from the issuance of a sovereign Eurobond worth.% of GDP and the former including a debt repayment worth.9% of GDP). At the same time, capital transfers fell (to.% of GDP in 9M:7 from.% in 9M:), reflecting slower absorption of EU funds at the onset of the new EU programming period. Net FDI inflows also declined (to.% of GDP in 9M:7 against.7% in 9M:), due to lower greenfield investment. On the other hand, capital outflows from banks were curtailed in 9M:7 (to.% of GDP from.9% in 9M:7), pointing to stronger confidence in the domestic banking system, and net lending to the non-financial sector increased (with inflows of.% of GDP in 9M:7 against outflows of.% in 9M:). All said, the overall balance deteriorated markedly in 9M:7 (by. pps y-o-y) to a surplus of.% of GDP. Bulgaria is set to remain the best performer in the region, despite the easing of the CAS to.% of GDP in FY: from.% in FY:7. Looking ahead, pressures on the trade deficit are set to persist, in view of strong domestic demand. The latter will be supported by a large fiscal stimulus ( pp of GDP in FY: following. pps in FY:7). With the current account remaining in surplus, covering external financing needs should not be an issue. Projecting that: i) net FDI inflows rise slightly (to.% of GDP in FY: from a projected.% in FY:7); ii) net portfolio investment outflows are contained (to.% of GDP in FY: against a projected.% in FY:7); iii) the maturing debt rollover rate remains unchanged compared with the projected FY:7 level (at c. 9%); and iv) capital transfers improve (to.% of GDP in FY: from.% in FY:7), due to the better absorption of EU funds, we see FX reserves rising further by EUR.bn in FY: -- following a projected increase of EUR.bn in FY:7 -- to EUR.bn at end- 7 ( months of GNFS imports). Bulgaria falls places to th in the World Bank s Ease of Doing Business Ranking. The main factors behind this deterioration were: i) the hike in the cost of connecting to the electricity network; and ii) the higher tax burden for companies (amounting to 7.% of profit), following the increase in the cost of vignettes (road tax). At the same time, slow progress was recorded in reforming the process for business start-ups (requiring 7 procedures, taking days and costing.% of total income). NBG - Emerging Markets Research Bi-Weekly Report

5 7 November 7 Serbia BB- / Ba / BB- (S&P / Moody s / Fitch) Enforcing Contracts Trading Across Borders Ease of Doing Business Index (Score: -) Resolving Insolvency Paying Taxes Starting a Business Protecting Minority Investors Dealing with Construction Permits Getting Electricity Registering Property Getting Credit Real GDP Growth & Unemployment Rate rd out of 9 7F Real GDP (y-o-y % change, lhs) Underlying (excluding agriculture) Real GDP (y-o-y % change, lhs) Unemployment Rate (%, aop, rhs inverted) Overall & Primary Fiscal Balances and Public Debt (% of GDP) 7F Public Debt (rhs) Primary Balance (lhs) Overall Balance (lhs) Nov. -M F -M F -M F -m BELIBOR (%).... RSD/EUR Sov. Spread (, bps) Nov. -W % YTD % -Y % BELEX F F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) The IMF reached a staff-level agreement with the authorities on the completion of the th and final review of the -year EUR.bn precautionary SBA (% of 7 GDP). Following a -week visit that ended on November 7 th, the IMF mission commended Serbia s strong performance since the signing of the SBA. This is reflected in: i) the significant strengthening in (underlying) economic activity, prompting a sharp fall in the unemployment rate from 9.% in to.% in H:7. Indeed, GDP growth is set to ease temporarily to.% in FY:7 from the past year s post-global crisis high of.%, due to the negative impact of a severe drought on energy and agricultural productions. Nevertheless, excluding agriculture, GDP growth is set to strengthen to a post-crisis high of.9% this year from.% in FY:. ii) faster-than-expected fiscal tightening, with the consolidated fiscal deficit surpassing markedly the programme targets, for a rd successive year, due to stronger-than-expected revenue, leading to a lower-than-expected public debt-to-gdp ratio. In fact, the IMF expects a balanced budget this year -- well below the budgeted.7% of GDP. In view of this year s fiscal overperformance, the mission agreed with the Government to use part of the fiscal space in 7 for once-off expenditures (including a bonus for pensioners and wage bonuses). iii) well-anchored inflation, projected to remain within the NBS target band of ±.% (.% y-o-y in December according to our forecasts). In view of the subdued inflation and RSD appreciation, the mission agreed with the additional monetary policy easing in September and October (by bps bringing the policy rate to.%). iv) good progress in structural reforms, despite delays. In fact, Serbia implemented reforms in state-owned enterprises (SOEs), including the reduction of arrears of the weak SOEs to the gas company, Srbijagas, and electricity company, EPS. It also implemented reforms in railways and privatized the pharmaceutical company Galenika. Nevertheless, the mission stressed the need for further progress on: i) ensuring the resolution of other SOEs, especially in the petrochemical and mining sectors; ii) reforming public administration and modernizing tax administration; and iii) passing laws for a new public wage system. The approval of the review by the IMF Board is expected in late December. Although it will enable access to total funds of EUR.bn available under the SBA, the Serbian authorities are expected to continue to treat the arrangement as precautionary. Following the completion of the current arrangement in February, the Fund is expected to remain engaged with Serbia through the non-financing Policy Coordination Instrument (PCI), entailing the regular monitoring of economic developments and policies and their approval by the IMF Board. The PCI should maintain confidence in the Serbian economy and facilitate the access to global capital markets. Serbia s competitiveness improved in the World Bank Ease of Doing Business Report for. Serbia rose places to rd among 9 economies. The improvement was the result of the implementation of three business reforms in the past year: i) starting a business, as the improvement in efficiency reduced the days needed to register a company (to. from., well below the OECD high-income economies average of. days), while the reduction in the signature certification fee prompted a drop in the registration cost (to.% of income per capita from.% a year ago); ii) registering property, as the introduction of a geographic information system made property registration easier; and iii) enforcing contracts, following the adoption of a law that broadens the responsibilities of enforcement agents and the powers of the courts during the enforcement process. NBG - Emerging Markets Research Bi-Weekly Report

6 Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7-9M: -M: -9M: -M: -9M: -M: -9M: -M: -9M: -M: -9M: -M: -9M:7 7 November 7 F.Y.R.O.M BB- / NR / BB (S&P / Moody s / Fitch) Banking Sector Net Profit (bn, MKD, annualised) Net Interest Income Provisions for Bad Loans Net non-interest income Exceptional Gains & Losses Operating Expenses Net Profit (Before Tax, rhs) NPL Ratio & Cost of Risk Overall Non-performing loans ratio (%, lhs) Non-performing retail loans ratio (%, lhs) Non-performing corporate loans ratio (%, lhs) Quarterly Cost of Risk (bps, ann., -Q m.a., rhs) Quarterly Cost of Risk (bps, ann., -Q m.a., incl. temporary impairment charges on real estate, rhs) NIM & Cost-to-Income Ratio NIM (bps, ann., -Q m.a., lhs) Cost-to-Income Ratio (%, inverted, -Q m.a., rhs) Nov. -M F -M F -M F -m SKIBOR (%).... MKD/EUR.... Sov. Spread (. bps) Nov. -W % YTD % -Y % MBI, F F Real GDP Growth (%) Inflation (eop. %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) Banking sector net earnings declined by 7.% y-o-y in 9M:7, due to elevated NPL provisions amid an adverse political and economic environment. Banking sector net profit (after tax) fell by 7.% y-o-y to EUR 7.mn (.% of GDP) in the first nine months of the year. The negative performance was due to banks higher provisions for NPLs as a result of a sharp deterioration in economic activity (a contraction of.9% in H:7 compared with an expansion of.9% in FY:) and protracted political uncertainty ahead of the mid-october local elections. Note that political uncertainty dissipated only after the mid-october local elections, at which the new coalition Government secured a landslide victory (7 mayoral seats out of a total ). In the period from late May when the SDSM-led coalition Government was formed (after months of political vacuum) until the local elections, political uncertainty remained high, as the new Government controlled a slim majority in Parliament ( out of seats) and hinged on the support of four parties ( of which are ethnic Albanians). As a result, the (annualised) ROAE and ROAA declined to.% y-o-y and.% y-o-y, respectively, in 9M:7, from.9% y-o-y and.% y-o-y in 9M:. NPL provisions rose sharply by.7% y-o-y in 9M:7, despite a drop in the NPL ratio. In view of a steady decline in the NPL ratio, we believe that banks nevertheless increased NPL provisions in 9M:7 to deal, if necessary, with a worse-than-expected impact of the adverse political and economic environment on their loan books. The NPL ratio declined by.9 pps y-o-y to.% at end-q:7. As a result, the (annualised) cost of risk rose by bps y-o-y to bps in 9M:7. A modest rise in the PPI (before tax, up.% y-o-y) in 9M:7 helped contain the deterioration in the bottom line. Net interest income (NII) rose by just.% y-o-y in 9M:7, as the expansion in average interest-earning assets (up.% y-o-y) was tempered by a weaker net interest margin (NIM, down bps y-o-y to bps in 9M:7). The negative performance of the NIM is mainly attributed to the fact that the blended lending rate declined at a faster rate than the blended deposit rate, reflecting tighter competition among banks for lending market shares and improving liquidity conditions (the loan-todeposit ratio fell to 9.% in 9M:7 from 9.7% in 9M:). The 9M:7 top line was also supported by a modest rise in net noninterest income (NNII, up.9% y-o-y), mainly driven by higher net fees and commissions income, as well as a marginal increase in operating expenses (up.% y-o-y), reflecting strict cost control. A reduction in a regulatory impairment charge related to banks accumulated foreclosed assets also supported the bottom line in 9M:7. Banks exceptional losses declined by.% y-o-y in 9M:7 (absorbing.% of net operating income compared with.% in 9M:), mainly reflecting lower impairment charges on banks foreclosed property, due to higher sales ahead of the end-7 regulatory deadline to dispose of their foreclosed non-financial assets. Banking sector performance to strengthen in Q:7. We expect the bottom line to rebound in Q:7, underpinned by lower provisions for non-performing loans, on the back of a broad-based economic recovery and the normalization of the political situation, as well as a pick-up in lending activity. The latter should be supported by: i) easing credit standards following the significant clean-up of banks balance sheets in FY:; ii) adequate liquidity; and iii) a strong capital base (.% in September). Overall, we see (annualised) ROAE improving by. pps y-o-y to.% in Q:7, partly reversing the deterioration in 9M:7. In the event, ROAE will reach.% -- its second-highest level in the past years after.% in FY:. NBG - Emerging Markets Research Bi-Weekly Report

7 9M: 9M:9 9M: 9M: 9M: 9M: 9M: 9M: 9M: 9M:7 9M: 9M:9 9M: 9M: 9M: 9M: 9M: 9M: 9M: 9M:7 9M:7 9M: 9M:9 9M: 9M: 9M: 9M: 9M: 9M: 9M: 9M:7 7 November 7 Albania B+ / B / NR (S&P / Moody s / Fitch) Net interest income Operating expenses Profit tax & Other Net Profit (bn ALL) Cost of Risk & NPL Ratio Overall NPL Ratio (%, left scale) Net non-interest income Total Provisions Net income after tax Quarterly Cost of Risk (bps, annualised, -q m.a., right scale) Return on Average Equity, Capital Adequacy Ratio & Net Interest Margin CAD (%, lhs) ROAE (%, -q m.a., left scale) NIM (bps, -q m.a. right scale) Nov. -M F -M F -M F -m TRIBOR (mid, %).... ALL/EUR Sov. Spread (bps) Nov. -W % YTD % -Y % Stock Market F F Real GDP Growth (%)..... Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) The banking sector s bottom line strengthened markedly on an annual basis in 9M:7, with ROAE returning to double digits. Net profit (after tax) increased to ALL.9bn (EUR.mn or.% of GDP) in 9M:7, more than ½ times its level in 9M: and exceeding the FY: gains of ALL 9.bn. The strong performance was almost exclusively due to lower provisions, following a sharp rise in FY: prompted by the bankruptcy of two large corporates. As a result, (annualised) ROAE and ROAA returned to double digits, up to (a -year high of).% and.%, respectively, in 9M:7 from the corresponding levels of.% and.7% in 9M:, and 7.% and.7% in FY:. The cost of risk eased significantly on an annual basis in 9M:7, in line with the sharp improvement in bank asset quality. P/L provisions declined sharply in 9M:7, amounting to just ⅕ of their level in 9M: and absorbing just.% of pre-provision earnings in 9M:7, well below the.% in 9M:. This occurred due to the normalization in provisioning, following a once-off sharp rise in FY:, due to: i) the bankruptcy of two large companies (namely, Albania s only steelmaker, Turkey s Kurum, and the % state-owned oil refiner, ARMO), and the concomitant pressure on related companies; and ii) strengthened supervision by the BoA that led to NPL reclassifications in FY:. The decline in provisions also reflects a lower NPL ratio (the share of substandard, doubtful and loss loans in total loans), down sharply by. pps y-o-y to a ½-year low of.% in Q:7 from.% in Q: and a post-crisis peak of.% in Q:. This was supported by: i) strengthening economic activity and improved collection; ii) reversals (write-backs) of NPL provisions (supported by loan restructuring, amounting to ALL.bn in H:7, or.% of end- stock of loans); and iii) the regulation mandating the obligatory write-off of loans held in loss category for more than three years (write-offs amounted to ALL.bn in Q:-Q:7, or.% of end- stock of loans). As a result, the (-quarter rolling) cost of risk fell sharply, by 7 bps y-o-y to (a -year low of) 9 bps in Q:7 from 9 bps in Q:. Pre-provision earnings weakened in 9M:7. Pre-provision earnings were down by.% y-o-y in 9M:7, following declines of.% in 9M: and.% in FY:, due to the continued fall in net interest income (NII) and higher operating expenses. Indeed, NII (.% of gross operating income) fell by.% y-o-y in 9M:7 following a decline of.7% in FY:, as higher average interest earning assets (up.% y-o-y in 9M:7, supported by a sharp rise in securities) were more than offset by the compression of the NIM (down bps y-o-y to bps in 9Μ:7 -- its lowest level on record -- from bps in FY:). The compression of the NIM occurred as the improvement in core NIM, on the back of the declining share of higher-costing time deposits (.% of total deposits in 9Μ:7 from.% in 9Μ:), was more than offset by the decline in non-core NIM, in line with the drop in government domestic debt yields. Furthermore, operating expenses rose by.% y-o-y in 9M:7 (including a.% rise in personnel expenditure in 9M:7) -- yet below the.7% y-o-y average inflation in the same period. With operating income declining and operating expenses rising, the cost-to-income ratio deteriorated, rising by. pps to.% in 9M:7, above the FY: outcome of.%. Banking sector profitability set to reach a post global crisis high in FY:7. Profitability is set to improve on an annual basis in Q:7 as well, with the ROAE rising to an estimated.% in Q:7 from.% in Q:. This should be primarily driven by a persistent decline in NPL provisions, following a once-off increase in FY: and a declining NPL ratio. Overall, we foresee FY:7 ROAE returning to double digits, rising to an estimated c..% from 7.% in FY:. NBG - Emerging Markets Research Bi-Weekly Report

8 : :9 : : : : : : : 9:7 : :9 : : : : : : : 9:7 M: M: M: M: M: M: M: M:7 7 November 7 Cyprus BB+ / Ba / BB (S&P / Moody s / Fitch) Contributions to Tourist Arrivals Growth pps % EU (excl. UK) Israel UK Russia Other y-o-y % change Customer Deposits (y-o-y % change) Total Deposits Non-Resident Deposits Non-Euro Area Resident Deposits Euro Area Credit to the Private Sector (y-o-y % change) Total Loans Retail Loans Corporate Loans Nov. -M F -M F -M F -m EURIBOR (%) EUR/USD Sov. Spread (. bps) Nov. -W % YTD % -Y % CSE Index F F Real GDP Growth (%) Inflation (eop. %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) Tourist arrivals posted a solid increase of.% y-o-y in M:7, despite a slowdown from the main source countries (Russia and the UK). Following a sharp rise in tourist arrivals by.% y-o-y in M: and a record-high.% in FY:, momentum continued in M:7, with an increase of.% y-o-y. This deceleration from a very strong pace was mainly driven by a slowdown from the two largest source countries -- the UK and Russia (accounting for c. % of total arrivals in FY: and increasing by 7.9% y-o-y and.% y-o-y, respectively, in M:7, compared with rises of.% y-o-y and.7% y-o-y in M:). The slowdown in British and Russian visitors can largely be attributed to their gradual return to neigbouring countries, Turkey and Egypt, due to easing domestic security concerns and more competitive prices. Indeed, Turkey has seen a strong rebound in the number of Russian and UK visitors (up c. % y-o-y and -.% y-o-y, respectively, in 9M:7 compared with declines of.% y-o-y and.% y-o-y in 9M:), mainly reflecting the resumption of charter flights from Russia in September following the removal of Russian sanctions and more competitive prices. On the other hand, improved security conditions and a sharp depreciation of the domestic currency in Egypt is also likely to have diverted Russian and UK visitors from Cyprus. The slowdown in overall tourist arrival growth was, however, tempered by a sharp rise in arrivals from the EU (excl. the UK) and Israel (accounting for.% and.%, respectively, of total arrivals in FY: and contributing. pps and. pps to tourist arrival growth in M:7, up from. pps and. pps in M:). Furthermore, tourist receipts have risen by a solid.% y-o-y in M:7, broadly unchanged from M:, as the slowdown in arrivals over the same period was offset by an increase in spending per tourist, reflecting both an increase in the number of overnights and spending per overnight per tourist. For the year as a whole and based on recent trends, we expect tourist arrivals to increase by c..% to a record-high of.7mn in FY:7. Moreover, in view of recent trends in spending per tourist, we expect tourist receipts to increase by c..% in FY:7 -- similar to FY:. Thus, the tourism sector (accounting for.% of the island s GDP according to the World Travel & Tourism Council -- WTTC) should contribute c.. pps to FY:7 GDP growth -- estimated at.7%. Banking sector deleveraging slowed in 9M:7, on the back of an increase in new corporate loans. Credit to the private sector fell by.% y-o-y in September against a decline of 9.% in December. The deceleration was exclusively driven by a milder decline in lending to corporates (down.% y-o-y in September against a drop of.% in December), reflecting new loan originations to corporates of a low credit risk profile. The rise in new loans to corporates was encouraged by the country s improved growth prospects (GDP growth is set to reach a post-crisis high of.7% this year), more favourable interest rates (average interest rates on long-term corporate loans have declined by bps y-o-y to 7 bps in Q:7) and a gradual reduction in banks non-performing exposures (down to.% of gross loans in July, from 7.% at end- and a peak of 9.7% in May ). Customer deposits slowed in 9M:7, mainly due to a decline in non-resident deposits. Customer deposit growth was down to.% y-o-y in September from.7% y-o-y in December. The deceleration was driven by non-residents (accounting for % of total deposits and down 7.% y-o-y in September against.% y-o-y in December) and, to a lesser extent, by Cypriot residents (up by a still robust.% y-o-y in September against a rise of.% y-o-y in December). NBG - Emerging Markets Research Bi-Weekly Report 7

9 / / / / / / / / / / / / / / / / / / / / /7 /7 /7 FY:9/ FY:/ FY:/ FY:/ FY:/ FY:/ FY:/ FY:/7 FY:/7 Projection Outcome FY:9/ FY:/ FY:/ FY:/ FY:/ FY:/ FY:/ FY:/7 FY:/7 Projection Outcome 7 November 7 Egypt B- / B / B (S&P / Moody s / Fitch) 9 7 Real GDP Growth (%) Fiscal Deficit (% of GDP) FX Reserves FX Reserves excl. IFI Suport (USD bn, lhs) Months of import of GNFS (rhs) IFI Support (USD bn, lhs) Critical Level Nov. -M F -M F -M F O/N Interbank Rate (%) EGP/USD Sov. Spread (. bps) Nov. -W % YTD % -Y % HERMES, / / / /7E 7/F Real GDP Growth (%) Inflation (eop. %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) An IMF mission and Egyptian authorities reach a staff-level agreement on the second review of Egypt s economic reform programme, supported by a -year USD bn IMF Extended Fund Facility. The staff-level agreement is still subject to approval by the IMF s Executive Board and the completion of the review would make available about USD bn, bringing total disbursements under the programme to c. USD bn. At the end of the review, the Chief of the IMF mission underlined that: Egypt s growth picked up during FY:/7, with GDP rising by.% compared with the projected.%. This suggests that Q:/7 GDP growth stood at.% y-o-y well above its estimate of.7% -- in view of the first quarters economic growth of.% y-o-y. Encouragingly, the adjustment programme, through tight fiscal, monetary and incomes policies, has shifted the structure of economic growth from consumption towards exports and investments, which bodes well for strong and sustainable growth in the coming years. Annual inflation peaked in July (to a -decade high of % y-o-y) and is expected to decline to about % in Q:/9. Recall that the July peak resulted from the implementation of bold reforms in the context of the ongoing programme, including: i) the floatation of the domestic currency (on November rd, which has led to a sharp depreciation of the EGP by c. % against the USD since then); ii) sharp cuts in energy subsidies through price increases (fuel prices were increased by %-% on November rd and by up to % on July st 7, while electricity prices were hiked by -% in early-august and by up to % on July st 7); and iii) the replacement of the complex sales taxes by a VAT of % in early-september and the increase of the VAT to % on July st 7. The mission commended the prudent monetary policy stance of the Central Bank of Egypt (CBE), which is set to help reduce headline inflation to its target range of %-% in Q:/9 and single digits thereafter. Note that the CBE has hiked aggressively its policy rates by 7 bps since the signing of the IMF deal in November (the O/N deposit rate, the O/N lending rate and the -w repo rate stand currently at.7%, 9.7% and 9.% respectively), increased banks reserve requirement ratios by pps to.% in mid-october, and continues to absorb excess liquidity through open market operations. The overall budget deficit reached.9% of GDP, exceeding the target by. pps in FY:/7; however, this was due to the higher-thanexpected interest payments. This suggests that the fiscal deficit stood at.% of GDP in the last month of FY:/7 (June 7), in view of the month performance. Importantly, the primary deficit target of.% of GDP was met and fiscal consolidation reached a multi-year high of. pps of GDP in FY:/7. The strong fiscal performance in FY:/7 was the result of both revenue-enhancing and expendituresaving measures in the context of the IMF-supported programme, including the introduction of a VAT, the cut in energy subsidies and the reduction of the public sector wage bill. Foreign exchange reserves increased significantly to record levels, reflecting the overall strong policy framework and credibility of the authorities programme. FX reserves have almost doubled since the signing of the IMF loan, reaching an all-time high of USD.7bn (7. months of imports of GNFS) in October compared with USD 9.bn a year earlier. Excluding IFI support, FX reserves rose to USD 9.7bn in October from USD 7.bn a year earlier. The pick-up in FX reserves was supported, inter alia, by large FDI inflows, a sharp rise in foreign investments in domestic bonds and bills, and a significant recovery in workers remittances from abroad. NBG - Emerging Markets Research Bi-Weekly Report

10 7 November 7 FOREIGN EXCHANGE MARKETS, NOVEMBER TH 7 Against the EUR 7 Currency SPOT -week %change -month %change YTD %change* -year %change Year- Low Year- High -month Forward rate** -month Forward rate** -month Forward rate** % change* % change* Albania ALL Brazil BRL Bulgaria BGL China CNY Egypt EGP FYROM MKD India INR Romania RON Russia RUB Serbia RSD S. Africa ZAR Turkey YTL Ukraine UAH US USD JAPAN JPY UK GBP * Appreciation (+) / Depreciation (-) ** Forward rates have been calculated using the uncovered interest rate parity for Brazil, China, Egypt, India and Ukraine Currencies against the EUR (November th 7) ALL BRL BGL CNY EGP MKD INR RON -week % change -month % change YTD % change RUB RSD ZAR TRY UAH USD JPY GBP Depreciation Appreciation NBG - Emerging Market Research Bi-Weekly Report 9

11 7 November 7 MONEY MARKETS, NOVEMBER TH 7 Albania Brazil Bulgaria China Cyprus Egypt FYROM India Romania Russia Serbia Turkey S. Africa Ukraine EU US O/N T/N S/W Month Month Month Month Year LOCAL DEBT MARKETS, NOVEMBER TH 7 Albania Brazil Bulgaria China Cyprus Egypt FYROM India Romania Russia Serbia Turkey S. Africa Ukraine EU US -Month Month Month Year Year Year Year Year Year Year Year *For Albania. FYROM and Ukraine primary market yields are reported CORPORATE BONDS SUMMARY, NOVEMBER TH 7 Currency Rating S&P / Moody s Maturity Amount Outstanding (in million) Bid Yield Gov. Spread Asset Swap Spread Bulgaria Russia South Africa Turkey Bulgaria Energy Hld.% EUR NA/NA 7//. 7 9 Bulgarian Telecom..% EUR B-/B //.7 7 Gazprom.% '9 RUB BB+/NA 9//9, Gazprom.9% RUB BB+/NA //, FirstRand Bank Ltd.% ' USD BBB-/Baa // FirstRand Bank Ltd.% ' EUR NA/NA //. 9 Vakiflar Bankasi.% 9 EUR NA/Baa 7//9. 7 Garanti Bankasi.% 9 EUR NA/Baa /7/9. 9 Arcelik AS.7% EUR BB+/NA /9/. Turkiye Is Bankasi % USD NA/Ba //,. CREDIT DEFAULT SWAP SPREADS, NOVEMBER TH 7 Albania Brazil Bulgaria China Cyprus Egypt FYROM India Romania Russia Serbia Turkey S. Africa Ukraine -Year Year NBG - Emerging Market Research Bi-Weekly Report

12 7 November 7 EUR-DENOMINATED SOVEREIGN EUROBOND SUMMARY, NOVEMBER TH 7 Currency Rating S&P / Moody s Maturity Amount Outstanding (in million) Bid Yield Gov. Spread Asset Swap Spread Albania.7% ' EUR B+/B //. Bulgaria.% ' EUR NA/NA //. 9 Bulgaria.% ' EUR BB+/Baa //,. - Bulgaria.9% ' EUR BB+/Baa /9/,9.7 7 Bulgaria.% '7 EUR BB+/Baa //7,. Bulgaria.% ' EUR BB+/Baa // 9. Cyprus.7% '9 EUR BB/NA // Cyprus.% ' EUR BB/B //. 7 Cyprus.7% ' EUR NA/B //,. 7 Cyprus.7% ' EUR NA/B /7/,. 9 Cyprus.% ' EUR NA/B //,. 9 7 FYROM.7% ' EUR BB-/NA // FYROM.97% ' EUR BB-/NA /7/. FYROM.% ' EUR BB-/NA /7/.9 Romania.7% '9 EUR BBB-/Baa 7//9,. 7 7 Romania.% ' EUR BBB-/Baa /9/,. Romania.% ' EUR BBB-/Baa //,. Turkey.7% '9 EUR NR/Ba //, Turkey.% ' EUR NR/Ba //,.9 7 Albania.7% ' Bulgaria.% ' Bulgaria.% ' EUR-Denominated Eurobond Spreads (November th 7) Bulgaria.9% ' Bulgaria.% '7 Bulgaria.% ' Cyprus.7% '9 -week change -month change YTD change Cyprus.% ' Cyprus.7% ' Cyprus.7% ' Cyprus.% ' FYROM.7% ' FYROM.97% ' FYROM.% ' Romania.7% '9 Romania.% ' Romania.% ' Turkey.7% '9 Turkey.% ' Tightening Widening NBG - Emerging Market Research Bi-Weekly Report

13 7 November 7 USD-DENOMINATED SOVEREIGN EUROBOND SUMMARY, NOVEMBER TH 7 Currency Rating S&P / Moody s Maturity Amount Outstanding (in million) Brazil.7% ' USD BB/Ba // 7.9 Brazil.7% ' USD BB/Ba //, Bid Yield Gov. Spread Asset Swap Brazil.7% ' USD BB/Ba //. 77 Egypt.7% ' USD B-/B //,. Egypt.7% ' USD B-/B //,. 7 Egypt.7% ' USD B-/B //. Romania.7% ' USD BBB-/Baa //,. 9 Romania.7% ' USD BBB-/Baa //,. 9 Romania.% ' USD BBB-/Baa //9,. Russia.% '9 USD BB+/Ba //, Russia.7% ' USD BB+/Ba /9/,. 7 Russia.7% ' USD BB+/Ba //,.9 Serbia.7% ' USD BB-/B /9/,. Serbia 7.% ' USD BB-/B 7//9,. S. Africa.7% '9 USD BBB-/Baa /9/,7. 9 S. Africa.7% ' USD BBB-/Baa //,.7 9 S. Africa.% ' USD BBB-/Baa // 7. Turkey 7% ' USD NR/Ba //,. Turkey 7.7% ' USD NR/Ba //,. Turkey.7% ' USD NR/Ba //,. Turkey % ' USD NR/Ba //,. Turkey.7% ' USD NR/Ba /9/9,. Ukraine 7.7% '9 USD B-/Caa /9/. 7 Ukraine 7.7% ' USD B-/Caa //,. 7 Spread Brazil.7% ' Brazil.7% ' Brazil,7% ' Egypt.7% ' Egypt.7% ' USD-Denominated Eurobond Spreads (November th 7) Egypt.7% ' Romania.7% ' Romania.7% ' Romania.% ' Russia.% '9 Russia.7% ' Russia.7% ' Serbia.7% ' Serbia 7.% ' S. Africa.7% '9 S. Africa.7% ' S. Africa.% ' Turkey 7% ' Turkey 7.7% ' Turkey.7% ' Turkey % ' Turkey.7% ' Ukraine 7.7% '9 Ukraine 7.7% ' -week change -month change YTD change Tightening Widening NBG - Emerging Market Research Bi-Weekly Report

14 7 November 7 Level -week % change STOCK MARKETS PERFORMANCE, NOVEMBER TH 7 -month % change 7 Local Currency Terms EUR Local Currency EUR Local Currency EUR Terms Terms terms terms terms YTD % change -year % change Year- Low Year- High YTD % change % change % change Brazil (IBOV) 7, ,7 7, Bulgaria (SOFIX) China (SHCOMP), ,7, Cyprus (CSE GI) Egypt (HERMES), ,7, F.Y.R.O.M (MBI), ,, India (SENSEX),... 9.,7, Romania (BET-BK), ,, Russia (RTS), ,, Serbia (BELEX-) South Africa (FTSE/JSE), ,, Turkey (ISE ), ,7, Ukraine (PFTS) MSCI EMF,...., MSCI EAFE, ,77, Greece (ASE-General) Germany (XETRA DAX), ,, UK (FTSE-) 7, ,9 7, USA (DJ INDUSTRIALS),....,, USA (S&P ), ,, Brazil (IBOV) Bulgaria (SOFIX) China (SHCOMP) Cyprus (CSE GI) Equity Indices (November th 7) Egypt (HERMES) F.Y.R.O.M (MBI-) India (SENSEX) Romania (BET-BK) Russia (MICEX) -week % change -month % change YTD % change Serbia (BELEX ) South Africa (FTSE/JSE) Turkey (ISE-) Ukraine (PFTS) MSCI EMF MSCI EAFE Greece (ASE-General) Germany (DAX) UK (FTSE-) USA (DJ INDUSTRIALS) USA (S&P ) Loss Gain NBG - Emerging Market Research Bi-Weekly Report

15 7 November 7 DISCLOSURES: This report has been produced by the Economic Analysis Division of the National Bank of Greece, which is regulated by the Bank of Greece, and is provided solely for the information of professional investors who are expected to make their own investment decisions without undue reliance on its contents, i.e. only after effecting their own independent enquiry from sources of the investors sole choice. The information contained in this report does not constitute the provision of investment advice and under no circumstances is it to be used or considered as an offer or an invitation to buy or sell or a solicitation of an offer or invitation to buy or sell or enter into any agreement with respect to any financial asset, service or investment. Any data provided in this report has been obtained from sources believed to be reliable but have to be not been independently verified. Because of the possibility of error on the part of such sources, National Bank of Greece does not guarantee the accuracy, timeliness or usefulness of any information. The National Bank of Greece and its affiliate companies, its representatives, its managers and/or its personnel or other persons related to it, accept no liability for any direct or consequential loss arising from any use of this report. The final investment decision must be made by the investor and the responsibility for the investment must be taken by the investor. This report is not directed to, nor intended for distribution to use or used by, any person or entity that is a citizen or resident of or located in any locality, state, country or other jurisdiction where such a distribution, publication, availability or use would be contrary to any law, regulation or rule. The report is protected under intellectual property laws and may not be altered, reproduced or redistributed, to any other party, in whole or in part, without the prior written consent of National Bank of Greece. NBG - Emerging Market Research Bi-Weekly Report